"Paul Krugman’s Dec. 31 column “Chinese New Year” highlights the increasingly rancorous tone in the debate over America’s response to Chinese trade surpluses. The Nobel Prize-winning economist endorses protectionism as a response to American under-employment, defying the very broad consensus among mainstream economists for free trade, and basically dares China to respond by dumping its holdings of U.S. Treasurys."
krugman is a far left Manhattan NY Times Liberal. What we need to dump are the idiots running this country in that cesspool D. C. Now they have just given Fannie Mac unlimited "money" to pursue the same losing policies they mandated before subsidized by you and me and our grandchildren. More of what got us in this mess.
He is absolutely correct that Chinese monetary policy of pegging instead of floating the Yuan Renminbi creates an unfair price advantage for Chinese goods and that leads to job losses in other nations. The Chinese, of course, are only letting us taste a dose of our own medicine. Their central bank monetizes their nation's Dollar-trade surplus (by printing Yuan) to keep their exchange peg, while ours monetizes government deficits to keep our interest rate peg. Krugman's taunt seems a lot less bold knowing what he knows about the Fed buying down rates at the margin using its primary dealers.
That creates a capital flow stand-off: The Chinese are forcing Dollars in (by financing US debt), while we are forcing them out (carry-trade). This stand-off is the Triffin conflict coming to a point. There is only one way out of this and that is a new reserve currency, not based on one nation's current account deficit and not based on a fiat standard.
Protectionism is required. It is the only way out of this mess. And it is just a response to unfair Chinese protectionism. We cannot continue to let them deny us access to our markets while they subsidize their own economy. They don't even have any labor or quality standards. It is crazy. We cannot compete with slave labor and ratskin that passes for leather in clothing stores.